PETALING JAYA: Kenanga Research has lowered its earnings projection for Tenaga Nasional Bhd (TNB) for the current year by 13%, due to a RM650 million negative fuel margin attributed to coal inventory costs surpassing the prevailing coal price.
The research house projected TNB to achieve a core net profit exceeding RM4.1 billion or 71.6 sen per share in FY2023, maintaining its “outperform” rating on the stock.
This forecast was supported by the fact that lower fuel costs have led to a 47% reduction in its imbalance cost pass-through (ICPT) receivables from the record high of RM16.9 billion in Q4 FY2022, said the research house in a note today.
“However, we maintain our discounted cash flow (DCF)-derived target price (TP) of RM11.15, which reflects a 5% discount given a two-star ESG rating as appraised by us,” it added.
Meanwhile, Hong Leong Investment Bank (HLIB) reported that TNB’s management has provided guidance indicating that the ICPT for the first half of FY2024 is estimated to be RM7 billion, taking into account the prevailing trend in fuel prices.
HLIB had highlighted TNB has consistently reported reduced ICPT accruals, with RM2.9 billion in Q2 FY2023, compared to RM3.6 billion in Q1 FY2023 and RM6.4 billion in Q4 FY2022, aligning with the ongoing decline in worldwide fuel prices.
HLIB noted the government had previously granted approval for an ICPT of RM9.5 billion for H2 FY2023.
Of this amount, RM4.7 billion would be subsidised by the government, while the remaining RM4.8 billion would be transferred to end users through a tariff surcharge ranging from 3.7 to 17 sen per kilowatt-hour.
“TNB has fully recovered the government’s committed RM10.4 billion subsidies for H1 FY2023, and management guided [that] the RM4.7 billion will be recovered for July-Dec 2023, in equal instalments,” it said.
HLIB maintains ‘buy’ call
HLIB has upheld its “buy” call for TNB, keeping the TP unchanged at RM11.75, derived from DCF analysis, citing expectations of consistent stability in earnings from FY2023 to FY2025.
TNB’s core profit after tax and minority interests (Patami) for H1 FY2023 stood at RM1.8 billion, marking a 23.9% year-on-year (y-o-y) drop.
This decline fell short of both HLIB’s and consensus expectations, due to the underperformance of the domestic power generation segment as it was negatively impacted by a significant RM565.7 million cost variation compared to the approved cost projection (ACP).
This resulted from a sharp drop in coal prices as well as reduced capacity payments for Manjung 1-3 and two other hydro plants.
At the close of trade, TNB’s share price rose 1 sen or 0.10% to RM9.91, valuing the group at RM57.35 billion.